Business

S&P Close to $1.37B Deal Over Risky Mortgage Bond Ratings

Published

9 years ago

January 29, 2015

This Oct. 9, 2011, file photo shows Standard & Poor’s rating agency in New York. Standard & Poor’s is close to a $1.37 billion settlement with the Obama administration and U.S. states over allegations it knowingly inflated its ratings of risky mortgage investments that helped trigger the financial crisis. (AP Photo/Henny Ray Abrams, File)

MARCY GORDON, AP Business Writer

WASHINGTON (AP) — Standard & Poor’s is close to a $1.37 billion settlement with the Obama administration and U.S. states over allegations it knowingly inflated its ratings of risky mortgage investments that helped trigger the financial crisis.

The credit rating agency is expected to sign an agreement to settle with the Justice Department and about 20 state attorneys general, a person familiar with the matter said Wednesday. The person spoke on condition of anonymity because the settlement isn’t finalized and hasn’t been announced. It may be completed next week, the person said.

John Piecuch, a spokesman for New York-based S&P, a division of McGraw Hill Financial Inc., said the company declined to comment.

The settlement would resolve civil charges filed nearly two years ago accusing S&P of failing to warn investors that the housing market was collapsing in 2006 because doing so would hurt its ratings business.

According to the lawsuits filed by the Justice Department and nearly two dozen states, S&P gave high ratings to the securities backed by risky mortgages because it wanted to get more business from the big banks that issued them.

The Justice Department suit against S&P was one of the Obama administration’s most aggressive actions against those deemed responsible for contributing to the worst financial crisis since the Great Depression, and it followed years of criticism that the U.S. government had failed to do enough to hold financial-market players accountable.

The Justice Department had demanded $5 billion in penalties from S&P when it sued the company in February 2013. A payment of $1.37 billion to settle the case would be less than S&P’s revenue in 2013 of $2.27 billion.

The three big rating agencies — S&P, Moody’s and Fitch — have been blamed for helping fuel the 2008 crisis by giving high ratings to high-risk mortgage securities. The high ratings made it possible for banks to sell trillions of dollars’ worth of those securities — some investors, such as pension funds, can only buy securities that carry high credit ratings.

But those investments soured when the housing market went bust in 2006.

Experts have said the Justice Department lawsuit against S&P could serve as a template for action against Fitch and Moody’s.

S&P disputed the government’s allegations when the federal suit was filed, calling the legal action “meritless” and the claims “simply not true.” The company insisted its ratings were based on a good-faith assessment of the performance of home mortgages during a time of market turmoil. S&P also accused the government of filing the lawsuit against it as “retaliation” for its downgrade of the United States’ credit rating in 2011.

The Wall Street Journal, citing unidentified people familiar with the situation, reported earlier Wednesday that the settlement amount would likely be $1.37 billion.

Last week, S&P agreed to pay the federal government, New York state and Massachusetts more than $77 million to settle separate charges by the Securities and Exchange Commission related to its ratings of high-risk mortgage securities after the crisis. The SEC had accused S&P of fraudulent misconduct, saying the company loosened standards to drum up business in 2011 and 2012.

S&P neither admitted nor denied the charges in the settlement.

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Oakland Post: Week of April 17 – 23, 2024

The printed Weekly Edition of the Oakland Post: Week of April 17 – 23, 2024

Published

16 hours ago

April 19, 2024

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V.P. Kamala Harris: Americans With Criminal Records Will Soon Be Eligible for SBA Loans

Speaking in Las Vegas on Jan. 27, Vice President Kamala Harris announced a forthcoming federal rule that will extend access to Small Business Administration (SBA) loans to Americans who have been convicted of felonies but have served their time. Small business owners typically apply for the SBA loans to start or sustain their businesses.

Published

3 days ago

April 16, 2024

Oakland Post

On her daylong trip, Harris was joined by Horford, SBA Administrator Isabella Guzman, Interim Under Secretary of Commerce for Minority Business Development Agency (MBDA) Eric Morrissette, and Sen. Catherine Cortez Masto (D-Nev).

By California Black Media

Small business owners typically apply for the SBA loans to start or sustain their businesses.

Harris thanked U.S. Rep. Steven Horsford (D-NV-04), the chair of the Congressional Black Caucus, for the work he has done in Washington to support small businesses and to invest in people.

“He and I spent some time this afternoon with business leaders and small business leaders here in Nevada. The work you have been doing to invest in community and to invest in the ambition and natural capacity of communities has been exceptional,” Harris said, speaking to a crowd of a few hundred people at the Brotherhood of Electrical Workers Hall in East Las Vegas.

“Formerly incarcerated individuals face significant barriers to economic opportunity once they leave prison and return to the community, with an unemployment rate among the population of more than 27%,” the White House press release continued. “Today’s announcement builds on the Vice President’s work to increase access to capital. Research finds that entrepreneurship can reduce recidivism for unemployed formerly incarcerated individuals by as much as 30%.”

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G.O.P. Lawmakers: Repeal AB 5 and Resist Nationalization of “Disastrous” Contractor Law

Published

3 days ago

April 16, 2024

Oakland Post

File Photo: Assembly Republican Leader James Gallagher (R-Yuba City)

By California Black Media

Republican lawmakers gathered outside of the Employee Development Department in Sacramento on Jan. 23 to call for the repeal of AB5, the five-year old California law that reclassified gig workers and other independent contractors as W-2 employees under the state’s labor code.
Organizers said they also held the rally to push back against current efforts in Washington to pass a similar federal law.

“We are here to talk about this very important issue – a battle we have fought for many years – to stop this disastrous AB 5 policy,” said Assembly Republican Leader James Gallagher (R-Yuba City).
Now, that threat has gone national as we have seen this new rule being pushed out of the Biden administration,” Gallagher continued.

On Jan. 10, the U.S. Department of Labor issued a new rule providing guidance on “on how to analyze who is an employee or independent contractor under the Fair Labor Standards Act (FLSA).”
“This final rule rescinds the Independent Contractor Status Under the Fair Labor Standards Act rule (2021 IC Rule), that was published on January 7, 2021, and replaces it with an analysis for determining employee or independent contractor status that is more consistent with the FLSA as interpreted by longstanding judicial precedent,” a Department of Labor statement reads.
U.S. Congressmember Kevin Kiley (R-CA-3), who is a former California Assemblymember, spoke at the rally.

“We are here today to warn against the nationalization of one of the worst laws that has ever been passed in California, which has devastated the livelihoods of folks in over 600 professions,” said Kiley, adding that the law has led to a 10.5% decline in self-employment in California.

Kiley blamed U.S Acting Secretary of Labor, July Su, who was the former secretary of the California Labor and Workforce Development Agency, for leading the effort to redefine “contract workers” at the federal level.
Kiley said two separate lawsuits have been filed against Su’s Rule – its constitutionality and the way it was enacted, respectively. He said he is also working on legislation in Congress that puts restrictions on the creation and implementation of executive branch decisions like Su’s.
Assemblymember Kate Sanchez (R-Rancho Santa Margarita) announced that she plans to introduce legislation to repeal AB 5 during the current legislative session.

“So many working moms like myself, who are also raising kids, managing households, were devastated by the effects of AB 5 because they lost access to hundreds of flexible professions,” Sanchez continued. “I’ve been told by many of these women that they have lost their livelihoods as bookkeepers, artists, family caregivers, designers, and hairstylists because of this destructive law.”